Controlling the virus and boosting the economy aren’t mutually exclusive, economists and health care experts agree; but they are mutually difficiult.
As the pandemic surges nationwide (news reports describe it regularly as “out of control”), local and state officials are expected to impose – or re-impose – lockdown orders and other measures to halt its spread, threatening the viability of many businesses that are already struggling to survive and dampening prospects for economic growth. Congress meanwhile has yet to agree on a stimulus package that will help these businesses and provide essential financial support to the millions of out-of-work Americans whose unemployment assistance will expire at year-end.
Jobs Recovery Is Slowing
Against that backdrop, the economic recovery, not surprisingly, appears to be slowing. Employers added 245,000 jobs in November, the slowest hiring pace since May, falling well short of expectations and slipping significantly behind the 610,000 jobs gained in October. The economy has now recovered about half the 22 million jobs lost since March, but at the current pace, analysts note, it would take at least three years for the labor market to get back to where it stood before the pandemic struck.
Although the unemployment rate fell to 6.7 percent from 6.9 percent in October, analysts attributed the dip more to workers who dropped out of the market than to those who were able to find new jobs. The labor force participation rate – a broader measure of employment ─ declined, while the ranks of workers unemployed for six months or more increased by 385,000, bringing that total to just under 4 million.
“There’s no way to sugarcoat today’s weak jobs report,” Robert Frick, an economist at Navy Federal Credit Union, told CNBC.com. “We are far below [the pace needed] to return the almost 10 million jobless Americans back to work.”
“Calm Before the Storm”
“It feels weird to say a report that shows 245,000 jobs added and a 0.2-point drop in the unemployment rate is worrying,” Daniel Zhao, an economist at Glassdoor, a job listing and employee recruitment site, observed. But worrying its, he agreed. “This feels like the calm before the storm,” he told CNBC.com. The increase in the long-term unemployment rate is particularly disturbing he believes. “The longer someone is unemployed or out of the workforce, the harder it is to get them back onto payrolls,” he noted. And that represents “a ticking time bomb” threatening the prospects for further employment growth.
Consumers, who have been amazingly resilient thus far, are getting discouraged. The Conference Board’s consumer confidence index fell to 96.1 in November from 101.4 the previous month, as concerns about the rapid spread of the virus outweighed relief at the prospect that a vaccination to protect against it will be available soon.
“Heading into 2021, consumers do not foresee the economy or the labor market gaining strength,” Lynn Franco, senior director of economic indicators at the Conference Board, said in a press statement. “The resurgence of COVID-19 is further increasing uncertainty and exacerbating concerns about the outlook,” he added.
Herd Immunity – for Housing
While the virus continues to ravage most segments of the economy, the housing market has remained largely immune from it. Existing home sales increased for the fifth consecutive month in October, beating the September pace by 4.3 percent and rising 26.6 percent year-over-year.
New home sales lagged their robust September pace slightly (by 0.3 percent) but the 999,000 annualized sales rate beat the year-ago pace by 41.5 percent, according to the Census Bureau/Department of Housing and Urban Development monthly report.
Single-family housing starts increased by 6.4 percent compared with October, while the year-over-year annualized total (nearly 1.8 million units) bested the year-ago rate by just under 30 percent.
“Home builders are certainly reading the tea leaves,” noted Matthew Speakman an economist at Zillow, who sees a virtuous cycle in the statistics. “More sales means more construction means more sales,” he told Housing Wire.
Builders Confident and Concerned
Builder confidence levels, measured by a National Association of Home Builders/Wells Fargo index, have been rising steadily, but so have their concerns about increasing construction costs and scarce labor. “Homebuilders are "walking a tightrope between increasing costs of labor, materials, and land, and eager buyers seeking larger homes in suburban neighborhoods," George Ratiu, senior economist at Realtor.com, told DSNews.
Rising prices, a byproduct of scarce inventories, are another source of concern. The Core Logic Case-Shiller home price index increased by 7.8 percent for the year ending in September, representing the highest annual growth rate in more than six years, and pushing affordability rates down despite still favorable mortgage rates. Lawrence Yun, the NAR’s chief economist cautioned, “As home prices increase both too quickly and too significantly,” first-time buyers will increasingly face difficulty coming up with a down payment.”
Uncertain about their ability to find an affordable replacement home is making many existing home owners reluctant to sell the homes they own, exacerbating the market’s inventory woes. Although increasing construction rates have spurred hopes for improving the supply-demand imbalance, buyers willing and able to purchase homes continue to outnumber the homes available for sale. More than 70 percent of the homes sold in October were on the market for less than a month, the NAR reported.
The NAR’s pending home sales index, an indicator of future sales, fell by 1.1 percent in October following a 2.2 percent dip in September that reversed four consecutive monthly gains. Although the October reading was more than 20 percent higher than it was a year ago, that is damning with very faint praise given that the year-ago rate was flirting with historic lows. The current inventory of 1.42 million units represents a 2.5 month’s supply, a record low for that benchmark.
“The torrid growth in sales may ultimately be done in by an inventory crunch that is only getting worse,” Zillow’s Speakman told Housing Wire. “It’s hard to keep setting sales records when there’s so little for sale.”